Polls will not resolve economic crisis - Dr. Bandula Gunawardena | Sunday Observer

Polls will not resolve economic crisis - Dr. Bandula Gunawardena

22 January, 2023

In an exclusive interview with the Sunday Observer, Transport, Highways and Media Minister Dr. Bandula Gunawardena outlined the genesis of the current economic crisis and the many proposals that he had brought forward over the years to avert such a situation.

The origin of Sri Lanka’s economic crisis is not recent and wrong economic policies followed by most Governments have led to the present situation, Dr. Gunawardena said. He lamented that Sri Lanka lacked economists who could have guided the leaders and Finance Ministers on the correct track. The advice he (Dr. Gunawardena) gave in good faith as an economics expert was ignored by Finance Ministry pundits.

The Minister said out that State expenditure has risen drastically over the years as a result of various governments going on an unbridled recruitment spree. Just one Minister had recruited 6,000 persons to the Ceylon Petroleum Corporation (CPC) alone.

He expressed the hope that the agreement with the International Monetary Fund (IMF) would be finalised this year, alleviating the economic crisis to some extent. There is also generally good news on the debt restructuring front, he said. “Holding any kind of election at this juncture is not a solution to the economic crisis,” Dr. Gunawardena said.

The following are excerpts from the interview

Q: The tax paying people of the country now must bear the burden of the decisions made by past governments, State sector salaries and pensions. How did it come to this?

A: The current crisis is not one that occurred recently. Following 1977, no matter who came into power, there was no revenue to maintain the Government. A government’s recurring expenses include salaries of Government employees, pensions and interest paid on Government loans, Samurdhi subsidies and other expenses. No matter which party is in power they must bear these expenses. If there is no sufficient revenue for these then the Government can either obtain loans or print money.

If a Government cannot cover its expenses through tax revenue and also fails to obtain a loan, then they must print money. After carrying out this process for many years, we have now declared we cannot service our debts. But then we are not able to secure loans anymore. Neither can we print money. Politicians do not understand this. There is no solution to the current crisis. Changing governments or local governments will not provide an answer to it either.

Q: But the Opposition says the issue arose during Gotabaya Rajapaksa’s governance?

A: This is a fallacy. This issue has a long history. When I was in the Ministry of Finance, I brought in the Financial Responsibility Management Act, 2003. It has three purposes. By 2006, Sri Lanka’s budget gap should be 5 percent of the gross domestic product and should continue to be less than that amount, in 2013 the public debt should decrease to 65 percent of the gross domestic product and maintain that level, the government’s guarantee for loans should not exceed 4.5 percent of the gross domestic product.

This act was brought 20 years ago. The right medicine was given that day. But all the pundits who handled the Finance Ministry gave wrong advice to Parliament. This Act was amended three times. Because of this, today the debt has become 120 times the GDP.

The budget gap jumped by 12 percent. The amount of collateral for loans is 15 percent. Public financial management has completely collapsed. It is the fiscal crime committed in 2013 that has resulted in this situation today. This was aggravated during the Yahapalana Government.

Ravi Karunanayake, who was the Finance Minister at that time, and Kumaraswamy, who was the Governor of the Central Bank, increased the expenses and were unable to borrow, and when he was unable to take loans, he issued sovereign bonds at high interests and issued them in the international market.

Former President Mahinda Rajapaksa as Minister of Finance during 2005-2014 obtained sovereign bonds amounting to US$ 6.5 billion. But the good governance Government took more than US$ 12.12 billion in just 5 years. International sovereign bonds were issued in the last year of 2019 amounting to more than US$ 4 billion.

They are due until 2029. Therefore, even if someone’s Government comes, we cannot recover until 2029.

Q: You were a Powerful Minister in past governments and an economic analyst. Why were you not able to warn about this?

A: When I was a Minister in 2003 I gave the correct solution to this through the Public Finances Management Act. But everything happened according to the advice of pundits in the Ministry of Finance and other officials. The former Presidents and Finance Ministers listened to what these pundits said, but did not listen to what the Parliament and the Cabinet had to say. All this was explained to politicians by these persons. I even wrote a book showing that what they were saying was false because there was no point in talking about these in Parliament and outside.

I even complained to the Speaker that Parliament was lied to by these officials. No one is presenting any solution as they are incapable of it. But they do not like to admit this. Sri Lanka did not have a group of economists able to give solutions to the issues faced.

Q: You said that this situation has arisen due to the continuous hiring, increasing of salaries and printing of money. The Tissa Devendra Committee recommended that by 2001 there should only be 600,000 State sector employees. But by 2021 this has increased to 1.25 million. Your comments?

A: State expenditure has seen a sharp rise due to the lies peddled by various governments to gain power. This resulted in the increase of State sector salaries and pensions. Since 200, the expenditure on salaries and pensions have jumped by 633 percent. This was caused by hiring based on political reasons and increasing salaries to win elections.

Aware of our economic situation I never hired people needlessly to organisations I was heading including the Sri Lanka Rupavahini Corporation, Lake House, ITN, Postal Department and the Railway. But a particular Minister hired 6,000 staffers to the Ceypetco at once. A few State officials also support the politicians in carrying out these acts. Not all State employees are responsible for this situation.

These few officials do not allow those with the relevant subject knowledge gain any prominence. No Government has offered me the post of Finance Minister. I have taught this subject to hundreds of thousands of students. But I have not been able to teach this to our Parliament. It does not know how to wield its finance related powers.

Q: What is the future plan to pay State sector salaries?

A: The total revenue of the Government in December was Rs. 141 billion. But its recurring expenses including salaries and pensions was Rs. 154 billion. Therefore, the revenue does not cover these expenses. In addition to this in December we had to pay Rs. 182 billion in interest for loans obtained. All this was paid by printing money. Therefore, we must restructure our debt. We are receiving good news that India is agreeable to this. Japan and the Paris Club as well.

Discussions are continuing with China. This is the only solution. Along with debt restructuring, the IMF’s financial management agreement must be signed and the funds obtained.

Q: What is the status of the IMF agreement?

A: It will happen in the first quarter of 2023.

Q: The Opposition says the Government has agreed to IMF reforms we cannot carry out. Your comments?

A: First the Opposition must reveal what it can do. It is clear those who say no to the IMF cannot pay salaries and other benefits if they come into power. They must tell us how they will act if faced with these issues.

Q: It is said that for the first time in the country’s history there will be a change in the way salaries and pensions are paid going forward. Is this true?

A: Paying of salaries will not stop. Pensions are first in order of priority. Then this income is enough to pay employee salaries and Samurdhi. But that is it. However, politicians continue to tell the people they can carry out other activities as well without making any sacrifices. This political lie must stop. We will pay the full salary but it will be delayed in a few days.

It will apply to the first three months as tax revenue is low during these months. Treasury bonds will be issued to pay salaries. Over 30 percent is paid as interest for these. It is funded by the public.

Q: Recently it was said that inflation has stalled. Your comments?

A: Inflation is now at 50 percent. But prices of goods have not come down. They have increased three -fold. In order to see a positive situation, the inflation and interest rate of a country should be in single digits.

Q : Will interest rates drop?

A: It must be reduced. But since the Central Bank is the authority on this we must accept their stance on the matter.

Q: What steps have you taken to improve the railway and public bus system in Sri Lanka?

A: We are looking for loan assistance and foreign aid to create this efficiency. 1,000 new buses will be deployed for public transport in February. A huge project to renovate railway lines has commenced. We hope that after debt restructuring, electric train and electric bus investors will come to Sri Lanka. Apart from this, a number of other programs are being implemented, with foreign assistance.

Q: The Opposition said the Government is delaying local Government elections. But is holding an election not a burden on the current economy?

A: If the Election Commission or others do not understand the current situation in the country, we are ready to hold the election by bearing the costs. But the economic crisis will not be answered by all these. Everyone thinks only about themselves.

Pix by Nissanka Wijeratne